Crypton Electronics has a capital structure consisting of 43% common stock and 5

Question

Crypton Electronics has a capital structure consisting of 43% common stock and 57% debt. A debt issue of $1000 par value, 5.7% bonds that mature in 15 years and pay annual interest will sell for $974. Common stock of the firm is currently selling for $30.06 per share and the firm expects to pay a $2.31 dividend next year. Dividends have grown at the rate of 5.1% per yeat and are expected to continue to do so for the foreseeable future. What is Crypton's cost of capital where the firm's rate is 30%?

Explanation / Answer

What is Crypton's cost of capital where the firm's rate is 30%?
the actual cost of debt capital is
0.0637239 * (1-0.3) = 0.04460673

Their capital is 37% stock with a Cost of Capital of 0.132307. And 63% debt with a Cost of Capital of 0.04460673. So

WACC = 0.37 * 0.132307 * 0.63 * 0.04460673. = 0.0770558299
Or 7.706%

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